Why is it Important for You to Register Your Business for Corporate Tax?

Corporate taxation refers to tax levied on the profits earned by enterprises.  In the United Arab Emirates (UAE), corporate taxation was put in place to ensure the diversification of the economy to attain sustainability beyond the oil sector.

It applies to both local and foreign companies, with limited exemptions for smaller businesses and qualifying free zone entities. The tax is a standard rate of 9% is applicable for annual gains above the threshold of AED 375,000 and for profits above AED 3.01 billion a tax rate of 15% is applied. Smaller enterprises would be liable to reduced rates or exempted from this charge. 

In this manner, in compliance with corporate tax demands, organizations contribute to financing public infrastructure, education, and health services. In the UAE, businesses have to be updated with the basics of corporate taxation to be legally compliant and financially successful.

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The Process for Corporate Tax Registration in the UAE

1. Eligibility Determination

Check whether your company falls under the ambit of corporate tax. Most companies whose consolidated profits exceed AED 375,000 will fall under it and need to be registered. However, some of the free zone entities have different requirements.

2. Collect Required Documents

Prepare all the basic documents you will need for the registration process. And the Federal Tax Authority (FTA) may require certain documents translated into Arabic.

3. Create an Account on the FTA Portal

Sign up for an account on the FTA website, once registered, you will be able to access services to manage your tax affairs with ease. Fill in all the information and make sure your books are updated.

4. Submit the Application

Once you complete your application, submit it online via the FTA portal. You will receive an acknowledgment of receipt for your application, which you should keep in your records that need to be maintained for up to seven years at least.

5. Get Tax Registration Number

After the FTA has reviewed your application, it will provide you with a Tax Registration Number. A TRN is a unique number that you'll use for tax compliance and reporting.

6. Comply with Tax Reporting Requirements

Also, it is important, after the registration, that the submission of tax returns and payments need to be made timely. This will help the company become compliant and avoid penalties while building a good reputation in the market.

Benefits of Corporate Tax Registration in the UAE

1. Compliance with the Law

Maintain good relations with government authorities as non-compliance may lead to penalties, fines, or any other type of legal procedures against the business which will have negative effects.

2. Access to Deductions and Credits

Businesses registered in the UAE have access to numerous tax deductions and credits applicable when calculating the total amount of tax payable. All these provide some form of financial relief to support profitability and reinvestment for growth initiatives.

3. Credibility and Trust

Compliance with corporate tax legislation instills confidence in a company's good name among investors, partners, and clients. A company registered for tax is perceived as responsible and stable; therefore, it attracts potential investment and encourages the creation of business relations.

4. Eligibility for Government Contracts

Many government contracts and tenders in the UAE are available for only registered-for-corporate-tax businesses. Thus, this will open up several premium opportunities and collaborations with public entities.

5. Smoother Financial Operations

Registration puts in place an organized system for handling tax liabilities, thus allowing businesses to project and budget properly and efficiently. Such an organization will facilitate timely payment of taxes due and minimize the possibility of financial misstatements.

6. Contribution to National Development

Registration for corporate tax ensures that businesses contribute to the UAE economy and public services. The taxes collected provide a source of basic infrastructure for businesses, health, and education.

Why Corporate Tax Assessment is Necessary Before Registration?

1. Tax Liability Determination

A corporate tax assessment would help the business make an informed estimate of its tax liability that can be derived from the projected revenues and the projected expenses.

2. Meeting Compliance Requirements

Assessment proves to be a stepping stone for businesses to understand the regulatory framework regarding corporate tax in the UAE.

3. Eligibility for Exemptions Identification

It will determine if the business is entitled to any tax exemptions or concessionary rates, especially for small enterprises or businesses in free zones. 

4. Ease of Financial Planning

The ability to prejudge tax liability enables businesses to precisely plan their finances, including cash flow requirements. Knowing such exemptions can make a big difference in the financial planning of a company.

Who is exempt from UAE Corporate Tax? 

1. Small Businesses

The tax on corporate will not be payable on the profits that do not exceed an amount of AED 375,000. This exception will help small-scale businesses and startups reinvest their earnings in growth and development without bearing the load of taxes.

2. Eligible Free Zone Entities

It is possible for some of the free zone companies to be corporate tax-exempt as long as they meet the eligibility criteria such as complying with its free zone rules and conducting businesses within its designated free zones.

3. Government Entities

The government departments and bodies are also not subject to corporate taxation, making the government mechanisms and facilities economically viable in terms of public services and infrastructure.

4. Charitable Bodies

Non-profit organizations or any charitable establishments that operate for the benefit of the public are exempt from corporate tax imposition. They have to prove their work has a purpose based on charity rather than profit to retain their status.

5. Foreign Investors in Designated Activities

A foreign company involved in designated industries including oil and gas businesses or other strategic businesses, may be entitled to exemptions or special tax concessions when the conditions by the UAE authorities have been met.

6. Investment Funds

Investment funds that qualify will also not be subject to corporate tax, thus attracting investment and facilitating economic activities in the UAE.

To escape the legal hassle whilst complying with the regulations, contact our professionals.

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